Individuals and corporations engage in international tax planning in order to legally reduce their taxes. The field of international tax planning is broad and complex but there are three important aspects from which to start. There are three basic means of reducing taxes. They are to change residence, to change the source of income, or to set up legal offshore entities in tax advantaged jurisdictions.
Moving Offshore to Reduce Tax Burden
In the modern world communication across the globe is virtually instantaneous and travel from point to point is increasingly easy. Many parts of what were previously referred to as the “third world” have developed services and infrastructure on a par with Europe, North America, and Japan. Thus moving offshore to reduce tax burden may not mean a lesser lifestyle. In fact, the individual moving offshore may find that his money goes farther and that a better lifestyle is possible away from his country of origin. Thus, the decision to move offshore to reduce tax burden simply has to do with finding an offshore jurisdiction with favorable tax laws.
Tax advantaged jurisdictions will typically not tax income earned in other countries. Many have double tax treaties with countries in Europe and North America so that income from one jurisdiction is not taxed in both jurisdictions. Simply moving “offshore” may be sufficient for many to accomplish a reduction in taxes. This is typically a solution for retirees or those with very substantial wealth who don’t want all of their “eggs in one basket.”
Moving a Business Offshore to Reduce Tax Burden
For individuals or corporations looking to gain more income and not just save it the better solution may well be to start or move a business offshore. By setting up an international business corporation or taking advantage of government issued financial licenses in any of several jurisdictions it is possible to do business in a tax advantaged location. It is possible to take advantage of government issued financial services licenses in any of several offshore jurisdictions in order to provide, and charge for, services such as asset management and protection, trust services, money changing, money transmission, or a Forex business to name a few of the possibilities.
Using Offshore Solutions to Reduce Tax Burden
It is the use of various offshore “solutions” that are the most important aspect of international tax planning. Through judicious selection of an offshore jurisdiction, offshore banking, international business corporations, foundations, and trusts it is possible legally reduce or eliminate taxes as part of a comprehensive asset protection and privacy solution. A vehicle such as a Panama Private Interest Foundation has no owner but has beneficiaries. Such an entity can own an international business corporation or offshore bank account. Any income not gained for doing business in Panama will not be taxed in Panama. An individual can benefit from many aspects of this type of entity and legally reduce taxes at the same time.
Each of the three general aspects of international tax planning has its place. In order to most effectively benefit from any or all options the individual or corporation is well advised to consult with competent counsel regarding offshore choices and solutions.
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